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PHILADELPHIA-WP Realty is at it again. The Bryn Mawr, PA-based opportunistic retail investor has garnered $115 million of equity commitments for its fifth fund, which recently closed on its first acquisition, picking up a small retail center and adjacent land in nearby Devon, PA for approximately $18 million. Company principal Bryan Weingarten tells GlobeSt.com the equity is coming from its pool of high-net-worth investors and its long-time institutional joint-venture partner, BayNorth Capital, which is investing $50 million in the new fund.

Weingarten’s goal is to invest the money over three-to-four years and realize a 20%-plus net IRR to investors over a five-to-seven year hold. His plan is to purchase distressed and otherwise undervalued grocery-anchored properties with a value-add component at a cap rate between 9.5% and 10.5%, add the value and then sell at more normalized cap rates, say 8% to 8.5%.

“And that’s how we’ll make money–on the lower cap rate plus the added value from fixing and leasing,” Weingarten tells GlobeSt.com.

WP Realty’s expects its average deal will fall between 150,000- to 300,000 square feet and cost $15- to $25 million. He expects leverage in the range of 55- to 65%, which would allow the fund to acquire approximately $300 million worth of property.

The fund’s first deal is Devon Village, a 75,000-square-foot strip center in Devon anchored by a 30,000-square-foot Whole Foods that has been at the center for 16 years, along with an adjacent parcel. Weingarten scored a 70% acquisition loan from a regional bank at a 5.5% interest rate with plans to redevelop 30,000 square feet of the existing square footage, expand the Whole Foods to 50,000 square feet, expand the state-run liquor store to 10,000 square feet from 3,000 square feet, and build 20,000 square feet of new space on the adjacent land. The money for everything is included in the acquisition financing, Weingarten says.

The sellers were two partners who decided to go their separate ways, Weingarten says. The 30,000 square feet that would be razed is leased at a below-market rate to a clothing store that was once owned by one of the center owners. The owner sold the business to a private equity firm but for whatever reason didn’t arrange a long-term stay in the center as part of the deal; the lease expires next year, at which point the repositioning and expansion will begin. “There’s a lot of upside with the expansion and a large tenant leaving that was paying $8 [per square foot] in a $30 market,” he says.

As with nearly all real estate funds that acquired properties in recent years, Weingarten and its co-investors now expect to be holding some of the remaining assets in its third fund longer than five years in order to meet the IRR goal, and may have to do the same for some assets in its fourth fund, which is still active. “There’s no exit strategy at the moment,” he says. “But we’ve worked with lenders to extend the loans so we’re in pretty good shape right now.”

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